Did you have a rough 2009? Well, at least you're not David Letterman or Tiger Woods. Tiger Woods' travails offer risk managers an instructive case study in managing brand and reputation risk in the 21st century. Many of these lessons are placed in bold relief by contrasting Tiger Woods' reaction with David Letterman's exercise in crisis and reputational brand management.
Tiger's precipitous fall did more than make him a laughingstock and the butt of Jay Leno's monologue jokes. It had a real dollars-and-cents impact, just as a reputational hit would sting a corporation. Tiger's "brand" has been tarnished and dented. As details dripped out bit by bit, many corporate sponsors dropped their ties to the golf titan. Tiger lost endorsements with Buick, Gatorade, and AT&T (among others) since his Thanksgiving incident. Most likely, Tiger lost multi-millions in endorsement income because of the flap. Some companies simply do not want their names to be associated with him while the cloud of controversy swirls.
Admittedly, Letterman was not in the same league as Tiger as a product endorser. His reputation took a hit, but he still has his highly rated show. The buzz over his dalliances subsided. (Letterman has an advantage over Tiger as well, in that the talk show host was alleged to have been the victim of attempted blackmail.)
Let us look at four points of contrast between Dave and Tiger to distill some lessons for risk managers:
1. Be proactive instead of reactive. Letterman broke the story himself, admitting on his show—which aired on live TV—that he had sex with various staffers over the years. By contrast, Woods waited on any communication with the public until the story erupted in tabloids and from various mistresses, whom reportedly he later paid to keep quiet.
2. Fully disclose. Letterman offered a relatively complete disclosure with regard to the nature of his indiscretions, admitting on air that he had engaged in sexual activities with members of his staff. By contrast, Woods was vague with regard to whether he had committed any wrongdoing and later referred to his actions as "transgressions." In a later Web site statement, he specifically mentioned infidelity. Just get all of the bad stuff out there, upfront. Instead of risking a drip, drip, drip of adverse disclosures, rip the Band-Aid off all at once.
3. Offer a full apology versus "whine and cheese." From the start, Letterman offered a complete apology for his actions. By contrast, Woods was belated in expressing regret. But he could not just stop there. Instead, Woods blended his confession with complaints about the media invading his privacy. Letterman did not assert privacy rights or complain about media intrusions, even though he might have chafed at this.
4. Do it in real time versus inviting people to read your Web site. Again, Letterman offered a disclosure and apology in person and on the air. By contrast, Woods' communications regarding his activities have been transmitted via his Web site, after doubtlessly being drafted and redrafted by attorneys, publicists, handlers, and spin doctors.
Effective Reputational Brand Management
So what can corporations and their risk managers learn from these contrasting examples? Here are five tips and action items:
- Be proactive in getting bad news out. Don't wait for the bad stuff to hit the fan. If the news is going to be unpleasant, then be the one to deliver it. This is good advice for claim personnel, as well.
- Be specific about what went wrong. Apologizing for vague "transgressions" simply won't cut it.
- Apologize and express heartfelt regret. In the wake of the AIG bonuses to executives, Sen. Charles Grassley suggested that insurance executives follow the Japanese example of apologizing, then promptly committing suicide. While extreme, it underscores the need for a public show of remorse. A lawyered-up statement on a Web site will likely fall short.
- Outline an action plan of steps you have undertaken or will enact to fix the problem.
- Do not try to "have your cake and eat it, too" by complaining about intrusive media or whining about privacy rights.
There is another dimension of risk here. A company's own reputation sinks when somebody who is paid to endorse it becomes entangled in a public scandal. One risk may be that either the celebrity's reflected glory or reflected indignity gets cast back to the corporate endorser. The PGA is suffering financially as a result of what some have dubbed "TigerGate."
Not only celebrities are vulnerable to reputational hits. Toyota Motors has long enjoyed a cachet for safety and high quality. That reputation has become tarnished recently in the wake of a recall for sudden acceleration in multiple models of its best-selling vehicles. BusinessWeek estimates that the financial hit to Toyota could be as high as $155 million per week.
Further, companies that terminate the endorsement relationship because of public scandal must incur new costs. They may have to discontinue advertising from various media that was fashioned around the public figure. They must develop and pay for new marketing campaigns to replace the one that is now obsolete. Companies may also have new products on the cusp of launching that will not sell as well because of the devaluation of a public figure over a scandal or reputational hit.
When Accenture cut its endorsement tie with Tiger Woods, it rendered useless a large chunk of advertising that the company had previously used to affiliate itself with Tiger Woods. Tiger's woes challenged Accenture to develop alternative messages, all of which represented added costs to Accenture. Notably, Nike has remained loyal to the professional golfer and has not cut its ties. However, Nike plans to launch a new line of golf clubs in 2010. The buzz around that new product may diminish because of Tiger's devalued reputational standing. The moral is this: reputational risk to a company exists not only for what that company does, but also what company spokespersons do, along with the added expenses flowing from those spokespersons getting involved in scandal.
"Those who do not learn from the past are condemned to repeat it," said Philosopher George Santayana. Risk managers can ponder the David Letterman and Tiger Woods episodes, not for escapist titillation, but for lessons in how to handle—and mishandle—crises to protect the intangible but vital asset of corporate reputation.
